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Cablegate: Madrid Economic Weekly, February 8-12

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ZNR UUUUU ZZH
R 121634Z FEB 10
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 1933
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 4361
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 03 MADRID 000176

SIPDIS

STATE PASS USTR FOR D.WEINER AND J.GROVES
COMMERCE FOR 4212/DON CALVERT
TREASURY FOR OIA/OEE R.JOHNSTON

E.O. 12958: N/A
TAGS: EAIR ECON ELAB ECPS SP
SUBJECT: MADRID ECONOMIC WEEKLY, FEBRUARY 8-12

REF: MADRID 148

MADRID 00000176 001.3 OF 003


ECON: Crisis Atmosphere Over Budget Outlook, Economy Fades
ELAB: Business, Labor Groups Agree on Salary Increases for
Next Three Years
ELAB: Supplemental Unemployment Aid Extended for Another 6
Months
ECON/ELAB: GOS Says 2010 Stimulus Plan Will Create 274,000
Jobs
ECON: INE Confirms Recession Continued in 2009 Q4
ECON: Inflation at 1% in January
EAIR/ELAB: Air Traffic Control Reforms Pass, Strike Possible
ECPS: Telefonica Wants to Charge Content Providers, Search
Engines for Internet Use
ECON: Renault Plans Electric Car Production in Valladolid

Crisis Atmosphere Over Budget Outlook, Economy Fades

1.(U) Several factors during the week reduced the concern in
financial markets that Spain could be forced to default or
abandon the Euro. The presentations Finance Minister Salgado
and key staff gave in London on February 8 explaining the
GOS' budget plans seem to have been well received by
investors and journalists. The apparent determination of
European political leaders to support Greece in some way
reduced concern that Greece's troubles would spread to Spain.
The GOS has sent regional governments a deficit reduction
proposal that is reported to envision cuts in discretionary
transfers, such as those for investment, if regions do not
cut other spending sufficiently. Moody's and Fitch
reiterated their AAA ratings of Spanish debt, and the spread
between Spanish and German debt, which had risen over 100
basis points at the end of the previous week, fell below 80
points. That said, the GOS continues to face a difficult
task to bring down the budget deficit, and private
forecasters as a group do not appear to agree with its
deficit predictions for the next few years. Foreign press
coverage continued to be watched closely, including a
positive Financial Times piece about the seriousness of
Spain's budget plans and three very critical articles in The
Economist. Foreign financial journalists were uniformly
critical of remarks by Infrastructure Minister Jose Blanco
(who is President Zapatero's number two in the ruling party)
that the previous week's financial market turmoil was the
result of conspiracies against the Euro, Spain, and Zapatero.
(Expansion, 2/11; ABC, 2/11; El Confidencial, 2/11; Council
of Ministers, 2/12)

Business, Labor Groups Agree on Salary Increases for Next
Three Years

2.(U) Agreements to loosely set salary increases for the next
three years are being finalized between labor unions and the
CEOE business confederation, and the news may help reduce any
market fears of labor difficulties. According to the
agreement, salaries will be able to increase up to 1% in
2010, between 1% and 2% in 2011 and 2012, and between 1.5%
and 2.5% in 2013, depending on inflation. In the past five
years, salaries have increased on average about 3.7% per
year. Comment: While the salary increases take effect
immediately, the agreement as a whole is not complete, as a
special clause allowing individual businesses to lower
salaries in times of crisis or extreme financial losses needs
to be re-written. The CEOE and unions have already expressed
agreement in negotiations on this clause however, and it is
expected to be included in the final agreement shortly. (El
Pais, 2/9; El Confidencial, 2/9)

Supplemental Unemployment Aid Extended for Another 6 Months

3.(U) The Council of Ministers approved the extension of
supplemental unemployment aid for six more months to those
whose other public benefits have run out. The current
supplemental benefit, which expires on February 15, has
provided 420 Euros a month to over 300,000 unemployed people
who have lost benefits since last June. The government
expects another 200,000 people to apply for the new benefit
as their regular unemployment benefits expire. President
Zapatero initially announced on February 9 the GOS' intention
to extend the benefit. (All Media, 2/10; Council of
Ministers, 2/12)

GOS Says 2010 Stimulus Plan Will Create 274,000 Jobs

4.(U) The government predicts that the 5-billion-Euro 2010
stimulus program will create 274,000 new jobs in 2010. It

MADRID 00000176 002.3 OF 003


says the 8-billion-Euro 2009 stimulus plan created more than
400,000 jobs. Almost 70% of the 2010 plan's funds will go to
environmental and economic sustainability investments. (El
Pais, 2/9)

INE Confirms Recession Continued in 2009 Q4

5.(U) The National Statistics Institute (INE) confirmed, as
estimated by the Bank of Spain the previous week,
that the economy continued to contract in the fourth quarter
of 2009, the seventh consecutive quarterly decline. The
decline was only 0.1% from the
third-quarter figure, and production for 2009 as a whole was
3.6% below the 2008 level. Spain was the only G-20 or OECD
member still in recession at the end of the year.
(INE, 2/11; El Pais, 2/11)

Inflation at 1% in January

6.(U) The INE reported that January consumer prices were 1.0%
over their level of January 2009. Underlying inflation,
which removes the volatile energy and food components, was
0.1% over the same twelve-month period. (INE, 2/12)

Air Traffic Control Reforms Pass, Strike Possible During Busy
Travel Period

7.(U) The Congress on February 11 overwhelmingly approved a
series of air traffic control measures proposed by the
Council of Ministers on February 5, including expedited
training for new controllers, new standards, and competitive
bidding for service providers. The government proposed the
measures after talks broke off between the airports authority
and the air traffic controllers' union, leading to the
possibility of a disruption in service when the current
agreement expires on March 31. This is in the middle of Holy
Week, one of the year's busiest travel times. The government
is seeking to cut air traffic controllers' salaries by 15%
over the next 2 years. Minister of Infrastructure Jose Blanco
stated that salary cuts were long overdue and would lead to
annual savings of 150 million Euros. He added that the
controllers' demands would have Spain spending more three
times as much in 2012 as France or Germany. Although public
opinion generally sympathizes with workers, controllers' high
wages and ability to retire at age 52 have cost them public
support in a time of high unemployment and anticipated
government spending cuts. (Presidency Statements, 2/5 and
2/11; Europa Press, 2/11; El Confidencial, 2/11)

Renault Plans Electric Car Production in Valladolid

8.(U) Renault plans to make Valladolid the first site in
Spain to host an electric car production plant, which could
ultimately become one of the largest electric car production
plants in the world. Renault already has conventional
automobile production operations in Valladolid and now is
focusing on allocating more available land to construct the
plant as soon as possible. The company plans to start
production of the electric cars in the second half of 2011.
(Europa Press, 2/10)

Telefonica Wants to Charge Content Providers, Search Engines
for Internet Use

9.(U) Speaking before a Bilbao university audience February
5, Telefonica CEO Cesar Alierta warned that the current
Internet business model is unsustainable for telecoms, which
are going to have to start charging major users for use of
the network. He stated that companies like Google,
Microsoft, and Yahoo "use Telefonica's networks without
paying anything, which is good luck for them but a misfortune
for us...We put up the networks, we do the "peering," we make
the systems, we do the customer care...we do the post-sales
service, we do the installation service...we do it all. What
I mean to say is, they have algorithms and content...But
clearly it won't be able to continue this way." A rapid
response came on Twitter and in various blogs: "It's as if
(energy companies) Fenosa and Endesa charged household
appliance manufacturers for use of the electric grid," wrote
one commentator. The former state-owned monopoly Telefonica,
Spain's largest company, remains the country's predominant
telecom and Internet Service Provider (ISP) and has major
investments and operations in the U.S., Latin America, and
Asia. Consumers in Spain pay more for Internet access than
their counterparts elsewhere in Europe, and the notion of
ISPs seeking more compensation from other sources is likely

MADRID 00000176 003.3 OF 003


to be controversial. (El Pais, 2/7; El Mundo, 2/8; Cinco
Dias, 2/12)
SOLOMONT

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